Spending Through the Slowdown

Cutting back on IT investments during the downturn could have detrimental effects on businesses.

Pressure is mounting from CEOs to rein in spending throughout the enterprise, including IT, as the global economy struggles. Being good team players, many CIOs will forgo a vigorous fight to get the dollars needed to make critical IT investments. Instead, they will patch existing systems in order to make do until signs of a recovery emerge.

Such actions would be a strategic and ultimately costly mistake. It's now, during harsh economic times, when CIOs should aggressively pursue strategic IT investments that will give their companies a competitive advantage when the economy rebounds.

"Economic pressure provides a great opportunity to focus on transforming IT," says Accenture CIO Frank Modruson. During the last recession, Accenture replaced 450 financial applications with a single instance of SAP enterprise software. Despite huge upfront investments, the company soon realized significant savings through lower maintenance, integration and other costs. And it has decreased its IT budget by 20 percent in the intervening years.

CIO Insight Research's annual IT Spending Survey reveals that IT budgets inched up a miniscule 1.7 percent, while inflation rose by more than 4 percent this past year. As Ziff Davis Enterprise editorial research director Allan Alter writes, the current economy "provides the ultimate test on how business executives view information technology." Alter paints a cautiously optimistic picture of how companies will invest in IT, despite the fact that the survey was fielded in December and January, when doubts about the economy dominated headlines. But economic news has grown even bleaker, and the propitious outlook expressed by CIOs on IT investments could be withering. Let's hope not, because companies that fail to invest in critical IT systems will fall behind their competitors and will struggle to catch up.

Benchmarking pioneer Howard Rubin sees a split occurring among companies that invest in IT during these rough economic times and those that don't. "In a time where they should be spending their way through a crisis and using IT as the lever, they're cutting IT, and operating expense will go the wrong way, and they'll lose any competitive edge they'd ever had," Rubin says.

CIOs should aggressively make that point to their bosses. Otherwise, investment in strategic IT that provides real competitive advantage will not be made. IT, Rubin estimates, represents only 7 percent of corporate operating expenses in the typical, non-financial services company. CIOs should encourage their CEOs to look more closely at the other 93 percent to find areas where less damaging cuts can be made.